Economies move from agriculture to manufacturing to service economies and there are very good reasons for the transition. The movement to service economies means people can do a wide variety of jobs to earn an income and many of them will involve crowds of people. In economies that are service based, COVID strikes and social distancing becomes the norm. Everything that involves crowds shuts down, in the United Kingdom the numbers are catastrophic for the economy. Remembering behind the numbers are people, in an article by William Schomberg and David Milliken of Reuters, the British economy went down 20.4% in April as compared to March. That is 24.9% smaller than a year ago. Essentially the British economy is the same size as was in 2002.
British Prime Minister Boris Johnson says it was no big surprise, the big question is what happens next? PM Johnson believes the British economy is very resilient and dynamic and will bounce back.
The Bank of England (similar to the Federal Reserve in the US) has kept interest rates low and is buying back corporate bonds of $170 billion. The Finance Minister Rishi Sunak is considering further measures.
In England, roughly 1/3 of the private sector workers are on temporarily laid off, shops are expected to open soon and hopefully consumer spending increases. What we are seeing is the entertainment part of family budgets is much lower, because everything is closed. Meanwhile the British economy is also beginning to leave the European Union or EU as it Brexits.
Linking to dividend paying stocks, the economy moving to a service based economy tends to ensure more people have higher wages or earnings with less physical work, that is a good thing. For a company, being diversified is a wonderful thing until the very things that are diversified are not making money. We do not have a crystal ball and there was rational thought put into the diversification. Change is hard, just as a company making profits through all the cycles of the economy is hard. Ensure time is on your side as you invest in profitable companies.
There are more questions than answers, till the next time – to raising questions.